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Ketan Morjaria & Raji v The Commissioner General URA (Miscellaneous Application No. 628 of 2010)

High Court · [2011] UGCOMMC 208 · 2011 Application Partly Allowed — Injunction Granted on Conditions AI-generated summary ↓ Download Pin to watchlist Add to matter
Jurisdiction
Uganda
Case Type
Application for temporary injunction restraining enforcement of income tax assessment pending determination of main suit
Decision
Temporary injunction granted on condition that applicants pay 30% of assessed tax within 10 days

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Holding

Court granted a temporary injunction restraining enforcement of income tax assessments of UGX 20 billion and 21 billion against the applicants pending determination of the main suit, but ordered the applicants to each pay 30 percent of the assessed tax within 10 days as a condition for the injunction to remain operative. Court held that while the applicants disclosed a prima facie case on whether capital gains on sale of shares in a private limited company were exempt from tax under section 21(1)(k) of the Income Tax Act, they should not avoid the 30 percent deposit requirement imposed by section 103(2) of the Act merely by bringing proceedings in the High Court instead of following the statutory objection procedure before the Commissioner General.

Outcome

Temporary injunction granted on condition that applicants pay 30% of assessed tax within 10 days

Facts

The applicants were shareholders in Orient Bank Ltd holding 96.5% of shares. In January 2006, Bank of Uganda directed them to reduce related persons' shareholding to maximum 49% to comply with Financial Institutions Act s.24(1). In December 2008, the applicants sold 1,950,000 and 2,050,000 shares respectively to Bank PHB Plc Nigeria. The Commissioner General assessed the applicants for income tax arising from the sale: UGX 20,135,581,980 against the first applicant and UGX 21,168,223,620 against the second applicant. The applicants filed suit challenging the assessment, claiming capital gains on sale of shares in a private limited company were exempt under Income Tax Act s.21(1)(k) prior to July 2010 amendment, and that the sale was not an adventure in the nature of trade. They also lodged an objection with the Commissioner General under s.99 Income Tax Act. The Commissioner declined to waive the 30% deposit requirement under s.103.

Issues

  1. Whether the applicants have established a prima facie case with probability of success in the main suit challenging the tax assessment.
  2. Whether the applicants would suffer irreparable injury if the temporary injunction is not granted.
  3. Whether the balance of convenience favours granting a temporary injunction restraining enforcement of the tax assessment pending determination of the main suit.
  4. Whether the court should apply principles analogous to stay of execution under Order 43 rule 4 CPR to applications restraining enforcement of tax assessments.
  5. Whether it is proper to file parallel proceedings — both an objection before the Commissioner General and an original suit in the High Court — challenging the same tax assessment.
  6. Whether the High Court should exercise original jurisdiction or appellate jurisdiction in tax disputes where the Income Tax Act provides a statutory mechanism for objection and appeal.

Orders

  • A temporary injunction restraining the Commissioner General from enforcing payment of tax under assessment notices INDR/LTO/00090 and INDR/LTO/00091 issued 3 November 2010 pending final disposal of High Court Civil Suit No. 398 of 2010.
  • The applicants shall each pay 30% of the amount assessed to the Respondent within 10 days from the date of this ruling failing which the temporary injunction shall lapse.
  • The applicants shall be at liberty to agree with the Commissioner General whether the 30% payment should be by bank guarantee. If agreement is not reached within 5 days, payment shall be by transfer of money.
  • The proceedings on the objection to assessment lodged with the Commissioner General shall be stayed pending outcome of the interpretation of law in Civil Suit No. 398 of 2010.
  • Each party shall bear own costs.

Rules and key headnotes

Temporary Injunctions — Jurisdiction under Order 41 rule 2(1) — Restraint of Breach of Contract or Other Injury
Order 41 rule 2(1) of the Civil Procedure Rules empowers the court to grant a temporary injunction to restrain breach of contract or other injury irrespective of whether compensation is claimed, and is qualitatively different from Order 41 rule 1 which requires that property be in danger of being wasted or that a defendant threatens to remove property to defraud creditors. Order 41 rule 2(1) is exercised to support a legal right and does not depend on the existence of property in dispute.
Temporary Injunctions — Test for Grant — Prima Facie Case
To establish a prima facie case for grant of a temporary injunction, the plaintiff need not prove that his case has an overwhelming chance of success. All that must be established is that questions have arisen that merit judicial consideration, that the action discloses serious questions to be tried, and that the action is not frivolous or vexatious.
Income Tax Assessments — Parallel Proceedings — Objection to Commissioner and High Court Suit
It is improper to file two parallel proceedings for the same remedies before tribunals or courts exercising concurrent jurisdiction. A taxpayer who lodges an objection to assessment with the Commissioner General under section 99 Income Tax Act and also files an original suit in the High Court challenging the same assessment should ordinarily proceed by one route only, to avoid potential conflict of decisions and forum shopping.
High Court Jurisdiction — Original versus Appellate — Policy Considerations
Although the High Court has unlimited original jurisdiction under Article 139(1) of the Constitution, where the Income Tax Act provides a statutory mechanism for objection to assessment before the Commissioner General and appeal to the High Court under section 100, the High Court should as a matter of policy not encourage litigants to prefer the High Court over the statutory system, and should reserve its original jurisdiction for exceptional circumstances. The High Court's original jurisdiction should be exercised in conformity with written law, and taxpayers challenging assessments should ordinarily lodge objections with the Commissioner to enable the High Court to exercise its appellate jurisdiction.
Income Tax Assessments — 30% Deposit Requirement — Application to High Court Proceedings
Where a taxpayer lodges an objection to assessment with the Commissioner General, section 103(2) Income Tax Act requires payment of 30% of the tax assessed or that part not in dispute. The High Court should not give prospective litigants a pecuniary incentive to avoid lodging objections with the Commissioner by filing suits in the High Court without being required to pay the 30% deposit. In exercise of its discretion under section 37 Judicature Act, the High Court may grant a temporary injunction restraining enforcement of an assessment on condition that the applicant pays 30% of the assessed amount, thereby ensuring consistency with the statutory objection regime.
Tax Assessments — Nature and Status — Not Equivalent to Court Decree
An income tax assessment by the Commissioner General is prima facie evidence of the matters stated therein under section 98(2) Income Tax Act but is not conclusive evidence and is not akin to a decree of court. While an assessment is treated as a debt due to government when tax becomes payable, the assessment is not an order of court and the principles under Order 43 rule 4 CPR governing stay of decrees do not automatically apply to applications restraining enforcement of tax assessments.
Constitutional Authority for Taxation — Article 152(1) Constitution — Exemptions
Article 152(1) of the Constitution provides that no tax shall be imposed except under authority of an Act of Parliament. Where an Act of Parliament exempts income from tax, there is no constitutional authority to impose tax on that income. A taxpayer's suit to determine whether income is exempt under section 21(1)(k) Income Tax Act is therefore a suit to try whether the law permits imposition of tax, and is neither frivolous nor vexatious.

Legislation cited (46)

Cases cited (12)

  • American Cyanamid Co. v Ethicon Ltd [1975] 1 All ER 504
  • Kiyimba Kaggwa v Katende (1985) HCB 43
  • Noormohamed Janmohamed v Kassamali Virji Madhani [1953] 1 EACA 8
  • Noormohamed Janmohamed v Kassamali Virji Madhani [1953] 1 EACA 8
  • Uganda Projects Implementation and Management Centre v Uganda Revenue Authority (Constitutional Appeal No. 2 of 2009)
  • Commissioner General Uganda Revenue Authority v Meera Investments Ltd (Supreme Court Civil Appeal No. 22 of 2007)
  • Attorney-General v Shah (No. 4) [1971] 1 EA 50
  • Montgomery v Montgomery [1964] All ER 22
  • Duchess of Argyll v Duke of Argyll [1965] 1 All ER 611
  • Giella v Cassman Brown & Co Ltd [1973] EA 358
  • Robert Kavuma v Hotel International Ltd (Supreme Court Civil Appeal No. 8 of 1990)
  • Rabo Enterprises (U) Ltd & Elgon Hardware Ltd v Commissioner General Uganda Revenue Authority (Court of Appeal Civil Appeal No. 51 of 2003)

Full judgment

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The original judgment as reported. Read the original PDF before relying on any passage.

Ketan Morjaria & Raji v The Commissioner General URA (Miscellaneous Application No. 628 of 2010) [2011] UGCommC 208 (27 January 2011)
Source: this page presents Wakilii’s issue analysis and metadata for a publicly reported Ugandan judgment. Any AI-generated summary is marked as such. Judgment text is sourced from the Uganda Legal Information Institute (ulii.org). Wakilii is not affiliated with ULII.